What to Look For From Pfizer in 2012

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Pfizer (NYSE: PFE  ) has challenges as it enters this year. Losing exclusivity on a $10 billion product will do that. But I think the pharma giant has potential to have a solid year even in the face of the loss of Lipitor.

That is, if a few things can fall its way.

No. 1 on the list is the successful breakup of the company. Pfizer said last July it plans to sell or spin off its animal health and nutrition businesses. But it still hasn't figured out which is the best move yet. There are tax consequences to be factored in, but presumably a sale is in order if it can find a high enough bidder; otherwise, investors might end up with shares of the spinoffs that they can sell themselves if the price is right.

Pharmaceutical companies focusing on pharmaceuticals -- what a concept! -- is all the rage these days. Bristol-Myers Squibb (NYSE: BMY  ) sold or spun out its non-pharma assets over the past few years. Abbott Labs (NYSE: ABT  ) is in the process of separating its drugs from the rest of its products. And Eli Lilly (NYSE: LLY  ) has said it has no intention of moving away from its core. I like the move by all three; bigger isn't necessarily better, and while diversification reduces risk, it also slows growth.

But that means Pfizer needs to make some headway on its drug pipeline. With Pfizer being as big as it is, one drug won't make or break it, but gaining Food and Drug Administration approval for the drugs currently under review -- kidney cancer treatment axitinib, oral rheumatoid arthritis drug tofacitinib, and anti-clotting drug Eliquis -- would certainly help set the stage for post-Lipitor growth.

Revenue is likely to fall this year, but cost-cutting might hold earnings steady. Even if earnings fall a little in 2012, the company will be priced based on future growth, so pipeline developments could bolster the valuation. I've had an outperform CAPSCall on Pfizer since 2008, and while it's been a rough pick, especially after the Wyeth merger, the pick is beating the S&P 500 by a few percentage points, thanks in large part to the healthy 3.7% dividend yield. Even if 2012 doesn't offer much in the way of capital appreciation, the dividend should make it worth holding on to; I have no plans to close my CAPSCall.

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Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Abbott Laboratories and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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